Posts Tagged ‘Capitalism’

A hot political issue this political season is income inequality. The heart of the debate is that it doesn’t seem fair for some people to make millions while others are living close to poverty. The government already redistributes wealth through a variety of welfare programs, taxes, food stamps, Medicare, Medicaid, Social Security, etc., but advocates want to see a lot more. Is this fair? Is it feasible? Are there unintended consequences for even more income redistribution? Let’s check it out by first reviewing the scope of the problem: according to IRS data for 2013, the wealthiest 2.4% of taxpayers pay about 48.9% of all individual Federal income taxes; however, they also make over $250,000 adjusted gross annual income.

The United States’ economy is fueled by free enterprise, also known as capitalism. Being able to make a better life for yourself and your family motivates people to devote the time, energy and work necessary to become financially successful. This system, however, does result in some being very rich and some being poor. Free enterprise, as practiced in the United States, contains economic safety nets to help ensure that no one is destitute. Even so, some will still be bad off. Here’s where charities play a large roll, as well as simple government policies, such as those that require that hospitals treat everyone, even when they can’t pay.

For average-income Americans, the Social Security Administration had reported that 51% of Americans make less than $30,000/year. This poor record was the fault of the Federal government in over-regulating businesses, until recently having an absurdly high (35%) corporate income tax rate that forced U.S. companies to relocate overseas where rates were much lower, and having had high individual tax rates (since many small businesses file as individuals). All of these policies are still advocated by the Democrat Party, who, in the same breath, say they’re for the “little guy” and for the poor.

Free enterprise is not perfect but has moved billions of people out of poverty in India, China and many other countries. Winston Churchill said that, “the inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of miseries.” Venezuela is the best recent example of how a wealthy capitalist country becomes impoverished when it converts to socialism. Income inequality naturally occurs under free enterprise but can be somewhat mitigated through the tax system. I believe that it should therefore be tolerated but great effort made by government and businesses to naturally raise lower incomes to higher incomes.

Bernie Sanders, Hillary Clinton, Elizabeth Warren, and many celebrities and academia advocate Socialism; the National Debt increased by $10 trillion (to $20 trillion) during President Obama’s 8 years; annual GDP growth under 2% for Obama’s entire reign; …ad infinitum. Is Capitalism to blame for America’s woes under President Obama or has President Trump proven that it’s the solution to our Nation’s economic problems?

Let’s take a closer look, first with very brief definitions of Capitalism and Socialism so we’re all clear on what we’re talking about. From the book, ‘isms and ‘ologies by Arthur Goldwag, Capitalism is the “free exchange of goods in a competitive marketplace.” In that same book, “Socialism” is defined as the opposite of Capitalism. Further, “In socialist economies, the means of production are either controlled by or directly owned by the state…”

Capitalism is fueled by a motive to make profits and it does this by providing goods and services that consumers want and at a price that can beat competitors’ prices who also provide similar goods and services. This forces capitalists to constantly improve quality and undercut competitors’ prices. Socialism eliminates the profit motive and therefore satisfies some people’s altruistic side and also attempts to redistribute wealth from the “haves” to the “have-nots,” satisfying some people’s idea of fairness. Because in Socialism there is no continuous need to improve efficiency and effectiveness, there usually is significant waste and inefficiencies. Capitalists would argue that they earn their profits, attending college for many years and then working 70-80-hour workweeks… and it’s their taxed profits that enables government to have the money to help others.

Capitalism creates wealth, which then is taxed and used to help the poor and needy. Socialism makes equality of outcome most important, consequently leading to everyone being equally poor with no large sums of funds available for government and charities to help those in need. Socialism takes away the incentive for people to work hard and excel to provide for themselves and their families. The top 10% of the wealthy pay 70% of all Federal taxes. The lowest 50% of taxpayers pay no Federal income taxes.

Government is usually the culprit behind much fraud, unemployment and economic downturn and is responsible for our current economic woes. Loans to people unable to repay them was the precipitating event that caused the 2007-8 economic downturn. Quasi-government Fannie Mae and Freddie Mac forced banks, with threats of lawsuits, to make those bad loans. Therefore, to have the government fully control the economy is insanity. Government does not understand business, does not understand how jobs are created, does not comprehend how many of its regulations, especially “Obamacare,” are destroying the economy.

The Dodd-Frank Bill, proposed by and named after two of the most significant initiators of the 2008 economic downturn (Congressman Barney Frank and Senator Chris Dodd), is truly absurd. For all of its harm to small banks and to the economy, it doesn’t even address the cause of the downturn, Fannie Mae and Freddie Mac.

So, let’s answer our two basic questions, “Is Capitalism Ethical”, “Does Socialism Work?” Capitalism is a huge engine for job creation and wealth to the extent that the Pacific Rim countries have embraced it, as well as China (and they are all becoming wealthy fast)…and there’s nothing unethical about making a reasonable profit for providing goods or services. Socialism, on the other hand, can be forced to work, but at the cost of civil liberties, prosperity, unemployment, and political interference in all aspects of your life.

Finally, how about some people becoming billionaires? Is it ethical for anyone becoming that wealthy? Huge wealth is certainly a possibility under Capitalism. However, very wealthy people pay most of the taxes and also give much of their wealth, after providing for their families, to charities, which use it more wisely than the government ever will. Finally, if you still have a problem with Capitalism, then call it “free enterprise” which means the same thing but is more descriptive and uncontroversial. And if you’re still unconvinced if socialism works or has ever worked, just check out what’s happening in Venzuela, and if you think Socialism is great, then continue to vote for Democrats and be prepared for the continued decline of the United States. On the other hand, keep an eye on the Trump economy to see what capitalism can do.